The area of smart cities is starting to show traction, says Anand Agarwal, CEO, Sterlite Technologies. In an interview with ET Now, Agarwal states that the growth of the firm in telecom sector for the quarter has largely been driven by data growth. Edited excerpts:

ET Now: Tell us what was the major contribution. Also, tell us about the optical fibre products and the contribution there as well as the services side of the business?

Anand Agarwal: Clearly, the quarter has seen growth that we have been seeing for the last few years for the telecom business and largely it is being driven by the data growth that we see across the segments. We have five main areas of growth, on one hand we the telcos in India who are continuing to focus and will be rolling out their 4G networks which is back hauled by optical fibre.

We have the second area which is starting to show traction is the smart cities and we have a few smart cities where we have started deploying the products.

The third area where we are working and creating the network for the defence forces through our system integration initiatives. We have the rural broadband rollout, which is happening and at the same time the international focus that we have through our manufacturing in China and Brazil, and we see each of these sectors are evolving, are growing in different stages and altogether it has combined for a good growth for us.

In terms of the products business that we do, the optical fibre is globally, over the last few quarters has been in a supply constrained scenario, there is more demand than overall supplies and our plants, both in India and China have been running at more than capacity. And in accordance with that we have taken a decision to accelerate our capacity expansion.

We are taking our optical fibre capacity from 22 million kms to 30 million kms. And overall we see great degree of visibility and traction across the three offerings that we have in products and services as well as software.

ET Now: Give some insight into the key order wins out of the total, their execution and time line as well as relative margin profile and how does the order book mix stack up now?

Anand Agarwal: Our current order book is about Rs 2,100 crores and the bulk of the order book in terms of revenues is clearly towards the system integration projects which in terms of scale are the largest ones, almost about 55-60% of the order book is towards system integration projects. The rest of it about 30% is towards products and about 10% is in terms of software.

In terms of margin profile our products business has a higher margin profile, EBITDAs of almost about 25-26% comes from products while lower EBITDAs of 11-12% comes from services and software. And we get a combined margin of about 21-22% which we have been maintaining or slightly growing over the last several quarters.

Other than margins what we clearly focus is on the return on capital deployed so while the system integration projects gives us lower EBITDA margins, their return on capital deployed is higher and consequently we are seeing quarter-on-quarter our return on capital deployed getting better.

ET Now: What is the utilisation at optical fibre as well as cable capacity and how do you see that shaping up?

Anand Agarwal: Our optical fibre capacity is running at 100%, and that is what has prompted us to take the decision to accelerate the capacity expansion. Our optical fibre cable capacity has just been commissioned. We have just doubled our capacity from eight million to 15 million kms.

At the old capacity, it is running close to about 90% and with the increase in capacity it is running at about 50% utilisation.

ET Now: You have guided for a 26% top line growth, 30% bottom line growth this fiscal, there is numbers of number growth drivers such as rapid rollout of your 3G, 4G networks, rural broadband etc. What exactly is going to build this kind of a bottom line and top line growth? Are you on track for this kind of a target?

Anand Agarwal: See, we have grown at those kind of rates for the last five years so the numbers that you are speaking about is the CAGR growth that we had for the last five years and we have guided that we will continue to grow at similar rates.

The growth is being driven across sectors so at one end we see strong demand for the products like optical fibres and at the other end we see strong demand for networks which require end-to-end capabilities.

We believe we should be able to maintain the growth that we have shown for the last five years and we have this degree of confidence because of the visibility as well as the RFQ pipeline that we have.

ET Now: What is in the pipeline that you are likely to convert in near term and their approximate execution time line?

Anand Agarwal: Typically, our system integration orders take between one and a half to two years, the smart city orders are between six to nine months.

In our pipelines, we have several orders that we have bided for system integration, some orders that we have bided for smart city projects, some orders that we have bided for supply of products to global telcos.

It is a healthy pipeline between products, system integration and software. And we will keep announcing any material wins that we do during the quarter itself.

ET Now: What is also on the anvil from the corporate side besides the government and how do you see the services side of the business growing?

Anand Agarwal: We have a healthy mix, almost one-third of our business comes from international telecom providers, about one-third comes from the private telecom providers in India and one-third comes from public networks in India.

For all the private telcos in India as well as outside India, the focus is on creating the backhaul, the mobile backhaul, the data networks at access end creating closer to the subscriber. So we have a great degree of both order book as well as visibility with both the telcos in India as well as telcos outside the country.

ET Now: Also you have advanced your expansion target of 30 million km to FY18, how much of this will be achieved through debottlenecking in capex marked for expansion, how much will be funded from internal accruals?

Anand Agarwal: Most of this will be a brown field expansion. This is will be done both by debottlenecking and process upgradations and this requires a total capital of about Rs 300 crore and all of it will be funded through internal accruals.

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Several people ET spoke with about Ericsson’s India operations, including its current and former employees, said the Stockholm-based firm has reduced headcount in the last one year or so across functions, in line with its global restructuring.

Several people ET spoke with about Ericsson’s India operations, including its current and former employees, said the Stockholm-based firm has reduced headcount in the last one year or so across functions, in line with its global restructuring.